What Are The Hidden Costs of Foreclosures?

 

It’s been widely quoted (on NBC News and other sources) that each foreclosure costs every neighboring homeowner 1% in home value and 2% increase in crime. There are even more costs. In Arizona Republic, Edythe Jensen’s article focused on Homeowner’s Associations and their budgetary woes. HOAs and their management companies are unable to perform many of their customary services, i.e., inspection and weed removal, because of the lack of HOA fees. This is a trickle down effect of short sales and foreclosures and delinquent HOA fees. 

 

A 2% increase in crime is subsequently borne by cities and counties who also have shrinking resources, because of a non-performing tax base. Each foreclosure and short sale depletes the tax base, and when the house is sold at a reduced price, the tax base is lowered. 

 

This is particularly gloomy and in view of Ben Bernanke’s ‘shrinking’ first half prediction, it’s time for Congress to get into this act.  

Who Do You Bail Out?

 

This was recently a column heading in the New York Times. Do you bail out Wall Street and the hedge funds? Do you bail out lenders? Do you bail out homeowners? 

 

There is a new proposal being floated by lenders to have the American taxpayers bail out the lenders. After decades of keeping Congress out of the lending game, these lenders have floated a proposal to allow the Federal Government (the taxpayers) to buy the lenders distressed loans!! The first step in this process is for the lenders to write down their loan portfolios to a ‘reasonable’ level. This would be extremely difficult, since many loans are in declining markets, which are continuing to slide downward. Once the lenders wrote down their portfolio, the Government would agree to purchase these portfolios at the discounted amount, with the hope that home values would increase, rather than decrease. The outcome, however, could be that the American taxpayer would be saddled with bailing out these lenders, ala the Charley Keating mess in Phoenix several years ago. 

 

Sen. Johnny Isaakson of Georgia, I believe, has floated a much better proposal. He is proposing to give buyers tax credits of $5,000 per year for 3 years, if they purchase a foreclosed home. This, in my opinion, is the stimulus which is needed to bail out our sagging housing market. In Phoenix, we have 15 months of inventory on the ground, and in March, the 3,000 Notice of Trustee’s Sales posted in December, will be hitting out inventory. It is imperative that this inventory be sold, quickly rather than slowly. The sooner we can ‘chew up’ this inventory and move on, the quicker we will recover from this housing ‘mess’. 

Interesting news and views

 

On the News Hour Thursday or Friday night (PBS Ch. 8 in Phoenix), Gwen Ifill was interviewing two senators, one from Arkansas and one from Georgia, regarding the stimulus package being worked on in the US Senate. The Georgia Senator, whose name escapes me, reminded the audience that in the 1970s our economy was in trouble, similar to where it is now, and that Congress passed a stimulus package which included a tax credit totaling $9,000 over 3 years, to anyone who purchased a home.

 

I don’t remember this incentive package. I do remember the 70s interest rates and horrible housing market, but I was not a Realtor and paid little attention to this segment of the economy.

 

I’m generally anti government ‘meddling’, but this incentive package, with a tax credit phased over 3 years, really intrigues me and I think (hope) it’s something that Congress will look into. The two Senators agreed that the stimulus package passed by the House would be a good step (perhaps with a little Senate tweaking), but that a further stimulus package might be needed to get this economy moving and the housing market off dead center.   According to Phoenix Board of Realtors statistics, www.armls.com  in December, we closed 844 units, both condos and homes, and we added 12,573 units, again both condos and homes. At that rate, we have 15 months of inventory on the ground. That’s not a pretty thought!!